Jakarta Bull Rally Seen Extending as Jokowi Lures Investors

Joko Widodo, Jakarta Governor and Presidential candidate for the Indonesian Democratic Party of Struggle, smiles during a legislative campaign tour in Jakarta. Widodo’s nomination sparked the Jakarta index’s biggest rally since September and spurred foreign investors to plow more money into the nation’s stock market than at any other time in 10 months. Photographer: Adek Berry/AFP/Getty Images

March 17 (Bloomberg) -- Indonesian stocks will extend their
bull-market rally as speculation increases that Joko Widodo will
win this year’s presidential election and boost investment, said
some of the country’s largest investors and brokerages.

The Jakarta Composite Index will rise a further 7 percent
to a record closing level of 5,225 this year after the
Indonesian Democratic Party of Struggle nominated the Jakarta
governor as its presidential candidate, according to PT CIMB
Securities Indonesia, the second-largest brokerage. Construction
and health-care shares may benefit on anticipation Widodo would
lift spending on welfare and infrastructure, said PT Manulife
Aset Manajemen Indonesia, the No. 2 mutual fund manager.

Widodo’s nomination sparked the Jakarta index’s biggest
gain since September and spurred foreign investors to plow more
money into the nation’s stock market than at any other time in
10 months. Shares in Southeast Asia’s biggest economy have
bucked a 6.2 percent decline in the MSCI Emerging Markets Index
this year amid accelerating economic growth, a shrinking
current-account deficit and better-than-estimated earnings.

“There are hopes around the infrastructure agenda and
whether he can push through much-needed spending on that,”
James Thom, a Singapore-based money manager at Aberdeen Asset
Management Plc, which oversees about $320 billion worldwide,
said by phone today. “There is a whole range of sectors that
can potentially benefit.”

Health Plan

Widodo has made infrastructure development and streamlining
tax collection centerpieces of his governance, boosting his
support in the business community.

Since becoming governor in September 2012, he has begun
construction of a monorail in the capital and pushed through the
commencement of a metro train system, which had been delayed for
years. Widodo said in January that he plans to increase
Jakarta’s budget by 75 percent this year by moving tax
collection online and raising oversight to tackle evasion. He is
using the administration’s cash for a free health plan for more
than 3 million people, aimed at the capital’s poor.

Even before his candidacy was announced last week, Widodo,
known as Jokowi, topped a January poll of likely presidential
candidates by the Indonesian Survey Circle, ahead of the Golkar
party’s Aburizal Bakrie and Gerindra’s Prabowo Subianto.
Indonesia will hold legislative polls in April before the
presidential vote three months later.

Rally Risks

“The market considers him as the agent who can effectively
build the infrastructure,” Erwan Teguh, an analyst at PT CIMB
Securities, said by phone from Jakarta on March 14. “It would
lead to immediate and tangible results that can be felt in the
stock market.”

The rally may be short-lived if the economy loses momentum,
said John Rachmat, the head of research at PT Mandiri Sekuritas.
Indonesia’s economic expansion may slow this year to between 5.5
percent and 5.8 percent, the least since 2009, as the government
reins in the current-account deficit, Finance Minister Chatib
Basri said on Feb. 23.

China, Indonesia’s largest trading partner, reported the
lowest industrial output for the January-February period since
2009 and the weakest retail sales growth in a decade.

“Purely relying on a political sweetener would not be
enough to support the index to the bull-case scenario,” Rachmat
said in a phone interview on March 14 from Jakarta.

Bull Market

The Jakarta Composite Index surged 3.2 percent on March 14
to 4,878.64, extending the benchmark gauge’s increase from its
August low to 23 percent. Teguh’s year-end target for the index
would surpass the all-time closing high of 5,214.98 set in May.
The measure fell less than 0.1 percent at close in Jakarta. It’s
valued at about 15 times estimated earnings for the next 12
months, versus 10 times for the MSCI emerging markets index.

Cement producers PT Semen Indonesia and PT Indocement
Tunggal Prakarsa rose more than 2 percent today. Indonesia’s
rupiah strengthened as much as 0.9 percent to 11,254 per dollar,
the strongest level since Oct. 31, prices from local banks show.

Market Bonus

“Looking at his track record in setting up the health-care
system and speeding up infrastructure development, I expect the
infrastructure, construction and health-care companies to
benefit from his presidency,” said Alvin Pattisahusiwa, who
oversees about $3.3 billion as the chief investment officer at
PT Manulife Aset Manajemen.

About 72 percent of companies in the Jakarta Composite
Index that posted fourth-quarter results through February
surpassed analyst estimates, the highest proportion at that
stage of a reporting season since 2007, data compiled by
Bloomberg show.

Indonesia’s economy expanded 5.72 percent from a year
earlier in the three months ended Dec. 31, compared with 5.63
percent the previous quarter. The country’s current-account
deficit is expected to narrow to 2.5 percent this year, from
about 3.3 percent last year, according to the central bank.

“A Jokowi announcement is a bonus for the market as
otherwise the political uncertainty would be very high,”
Marsangap Tamba, the Jakarta-based head of investment at PT Sun
Life Financial Indonesia, which manages about 7 trillion rupiah
($622 million), said in a March 14 interview. Tamba said the
Jakarta index may rise above its previous record this month and
end the year at 5,300.